Ericsson outsources mobile manufacturing

Ericsson is outsourcing the entire manufacturing process for its mobile phone operation to Flextronics as the company strives for profitability for the unit.

Ericsson yesterday announced that it will outsource the complete manufacturing process of its mobile phones to Flextronic. The news came as the Swedish company announced disappointing fourth quarter results alongside warnings that sales and profits would not grow as fast as investors hoped.

"The results in our mobile phones business, while in line with expectations, remain unsatisfactory. As announced, the losses are caused by delivery failure from key suppliers and an inadequate product mix in the entry-level market. The delivery failures have lead to loss of large sales volumes and serious under-utilisation of production capacity, which has forced us into costly restructuring measures," said Kurt Hellström, President and CEO of Ericsson.

"Our back-to-profit programme, launched in the middle of last year, is progressing as planned, and we are on track to reach profitability by the second half of this year. In light of current market dynamics, we have taken a fundamental look at how we run the consumer business, and we have decided to completely outsource supply and production of mobile phones," he added.

Profits in the fourth quarter fell by more than two thirds to 2.25 billion kroners from 6.32 billion kroners in the same period last year. The company said it would grow by between 15pc and 20pc in the coming year, rather than the 20pc it had previously forecast. Margins are predicted to fall to between 6pc and 8pc from 10pc.

Ericsson's phone-making division lost 16.2 billion kroners, but Hellstrom said the biggest hit to profits would come from increasing investment in the development of new networks for the UMTS licences. Finance director Sten Fornell said: "This will be a year of investment and next year will also be a year of investment."